● We learnt that out of CNOOC’s ten planned new projects (offshore China) for 2013E, only five have been rolled out as of now. We suspect the remaining could be pushed into 2014E in view of a harsher operating environment further into winter.

● According to Woodmac, only seven new projects are coming on stream with total production rising 7.6% YoY in 2014E. Although Woodmac does not reflect the full production portfolio, we see increasing risks for a weaker-than-expected production in 2014E.

● We got an impression in our recent visit to CNOOC Engineering (600583.CN) that project line-up for 2014 is still strong. CNOOC’s management also maintains the 6–10% 5-year CAGR for 2011– 15, which we expect to be very back-end loaded.

● We cut our 2014E production growth forecast to 8% YoY and accordingly cut 2014E EPS to Rmb1.64. Near-term event to watch out for is the 2014 strategic preview scheduled in late Jan-14. We believe the stock will be under pressure in the near term, but we remain positive on potential 2015E growth, as well as good cash flow and potentially higher dividend payout.

● CNOOC is a CS NJA Focus List stock.

Fewer new projects on stream than planned
CNOOC planned to roll out ten new projects in 2013E at the beginning of the year, yet only five have successfully come on stream as of now and we expect the remaining to be pushed into 2014. Such a delay has led us to believe CNOOC’s 2014E production could be much lower than our previous expectation, as: (1) two large projects, Liwan 3-1 and Lufeng 7-2, could produce up to 40kbd boe in 2014E, according to Woodmac (c.30% of our previous 2014E incremental production forecast), and (2) weaker-than-expected execution could put further downside risks to planned projects in 2014E

We cut our 2014E production but keep 2015E volume unchanged
We cut our 2014E production volume forecast to 8% (vs. 14.6% previously) on project delays and weaker execution ability. However, we maintain our 2015E production figure as: (1) the company still maintains the 2011–15 production CAGR of 6–11% and (2) CNOOC Engineering (80% of revenue comes from CNOOC Ltd) may show a strong project pipeline in the coming 18 months, suggesting significant production volume could be unlocked in 2015E.

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